U.S. Markets open in 2 hrs 54 mins

Edited Transcript of TNDM earnings conference call or presentation 1-Nov-18 9:30pm GMT

Q3 2018 Tandem Diabetes Care Inc Earnings Call

San Diego Aug 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Tandem Diabetes Care Inc earnings conference call or presentation Thursday, November 1, 2018 at 9:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* John F. Sheridan

Tandem Diabetes Care, Inc. - Executive VP & COO

* Kim D. Blickenstaff

Tandem Diabetes Care, Inc. - President, CEO & Director

* Leigh A. Vosseller

Tandem Diabetes Care, Inc. - Executive VP, CFO & Treasurer

* Susan M. Morrison

Tandem Diabetes Care, Inc. - Executive VP & Chief Administrative Officer

================================================================================

Conference Call Participants

================================================================================

* Alexander David Nowak

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

* Brooks Gregory O'Neil

Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst

* Jeffrey D. Johnson

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Jonathan Preston McKim

Piper Jaffray Companies, Research Division - VP & Senior Research Analyst

* Kyle Royal Bauser

Dougherty & Company LLC, Research Division - Senior Research Analyst

* Mathew Justin Blackman

Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst

* Ravi Misra

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Ryan Blicker

Cowen and Company, LLC, Research Division - Associate

* Steven Michael Lichtman

Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst

* Travis Lee Steed

BofA Merrill Lynch, Research Division - VP

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, ladies and gentlemen, and thank you for your patience. You have joined Tandem's Third Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference may be recorded.

I would now like to turn the call over to your host, Chief Administrative Officer, Susan Morrison. Ma'am, you may begin.

--------------------------------------------------------------------------------

Susan M. Morrison, Tandem Diabetes Care, Inc. - Executive VP & Chief Administrative Officer [2]

--------------------------------------------------------------------------------

Thank you, Hajib. Good afternoon, and thanks, everyone, for joining Tandem's third quarter 2018 earnings conference call.

Today's discussion will include forward-looking statements. These statements reflect management's expectations about future events, product development, timelines and financial performance, and operating plans. And speak only as of today's date. There are risks and uncertainties that could cause actual results to differ materially from those anticipated or projected in our forward-looking statements. A list of factors that could cause actual results to be materially different from those expressed or implied by any of these forward-looking statements is highlighted in our press release issued earlier today and under the risk factors portion and elsewhere in our most recent annual report on Form 10-K, quarterly report on Form 10-Q and in our other SEC filings. We assume no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or other factors.

I'll now turn the call over to Kim Blickenstaff, Tandem's President and CEO, who will be leading today's call. Kim?

--------------------------------------------------------------------------------

Kim D. Blickenstaff, Tandem Diabetes Care, Inc. - President, CEO & Director [3]

--------------------------------------------------------------------------------

Thanks, Susan, and welcome, everyone, to today's call. Also joining me today are Leigh Vosseller, our Chief Financial Officer; and John Sheridan, our Chief Operating Officer.

2018 has been incredible. We delivered a record-setting quarter in terms of robust sales, improving gross margin and modest use of cash.

We started the year with a list of potential growth drivers including the launch of the t:slim X2 with Basal-IQ technology, strengthening our core business through scaling supply and renewal sales, our opportunities from the Animas exit from the market and our international launch.

Each of these factors independently have the potential to drive the business and our more than 70% year-over-year growth this quarter is evidence of our success across each of these initiatives. The demand for the t:slim X2 worldwide is strong and our positive momentum continues to build.

In the United States, our launch of Basal-IQ technology in August aligned perfectly with the Annual Diabetes Educators Conference. It was an ideal opportunity to showcase our new product and educate this important group of clinicians about its features and benefits. People were amazed by the simple-to-use automated insulin delivery feature and to learn that there is only 1 new screen to run the Basal-IQ technology.

This enthusiasm is translated into a nearly 120% increase in year-over-year pump shipments this quarter, and we are seeing more new routine prescribers, who weren't previously Tandem advocates, beginning to recommend the t:slim X2 pump. This supports our strategic vision that ease of use is more than a convenience. It drives technology acceptance by both users and health care providers.

The feedback from users is also overwhelmingly positive. Customers are reporting that it's helping prevent lows and also avoid the rebound high-blood glucose that people of diabetes will often experience when they're forced to treat unexpected lows, many describe the product as life changing.

We set out to change the standard of care in insulin delivery, and I believe that Basal-IQ is an important step in our doing so.

As you know, we offered Basal-IQ technology to our more than 30,000 t:slim X2 customers for no cost. Already, approximately 6,500 of these customers have obtained a new prescription, completed our online training module and updated our X2 software to include the Basal-IQ feature.

As you can see, overall, we've been extremely happy with the product launch and early feedback from both customers and health care providers.

We also continue to see strength in the overall market, with about half of our new customers reporting being new to pump therapy and continue growth from electronic and Animas conversions.

Our renewals are also gaining momentum with an 83% increase in year-over-year renewal shipments for the quarter. Another driver for us is our international launch of the t:slim X2 with G5 integration. We've been working through various prelaunch activities in select geographies and anticipate that these will continue to scale in the fourth quarter next year. But we're already seeing early indications of high demand.

Of note is our most recent approval of t:slim X2 by Health Canada. Our direct sales in clinical organizations in Canada are staffed and trained, and we're thrilled to have this great group of individuals join our Tandem family.

As a reminder, in other geographies internationally, we have partnered with experienced distributors for our customer sales and support.

Undertaking our international expansion this year has required a tremendous amount of work across our organization, but the team has done amazingly well in bringing to fruition our dream of offering the t:slim X2 to people worldwide.

The thing that makes where we stand today most exciting is that, the same catalyst we identified a year ago are still in place and present us with a tremendous opportunity for the year ahead.

As we look forward, we'll be working to build upon our momentum by continuing to scale our business into a leading global diabetes management organization, while advancing our product pipeline and furthering our mission to improve the lives of people with diabetes.

Overseeing our product development efforts is John Sheridan, who many of you had the opportunity to meet at our recent Institutional Investor & Analyst Day. John has been with Tandem for more than 5 years focusing on the operations of our business.

In addition to R&D in regulatory, his responsibilities also include quality, manufacturing and program management. John and his team have been in close contact with the FDA on establishing our iPump strategy on the agencies interoperability initiative, which I've asked him to review with us here today, along with providing an update on Control-IQ. John?

--------------------------------------------------------------------------------

John F. Sheridan, Tandem Diabetes Care, Inc. - Executive VP & COO [4]

--------------------------------------------------------------------------------

Thanks, Kim, and good afternoon, everyone. The FDA's new concept of interoperability presents an exciting opportunity for Tandem. It is intended to reduce the regulatory burden for both the agency and manufacturers as well as accelerate innovation in our market.

As a reminder, the concept of interoperability applies to an automated insulin delivery system, which contains 3 key elements: the insulin pump; the CGM; and an algorithm. The FDA has already introduced the interoperable CGM or iCGM classification with the fine regulations and required specifications referred to as special controls.

Dexcom's G6 was the first CGM approved with iCGM designation and initials are now underway to determine the special controls for the iPump classification.

Similar to Dexcom's efforts earlier this year to help establish a new device class for iCGM, we're working with the FDA to establish the new regulations and special controls for an iPump device class.

iCGM significantly reduced the regulatory process for our Basal-IQ system and brought great benefit to our X2 customers as it allowed faster access to the benefits of Dexcom's G6 sensor. This newly defined process for interoperability is important to our regulatory strategy for our new products in development.

For instance, for Control-IQ, instead of filing a modular PMA for the entire system as we originally planned, we are now pursuing a de novo process for our t:slim X2 pump platform, which we filed in October. We expect to file for regulatory approval of the Control-IQ algorithm, once the clinical data is available next year.

Like iCGM, once approved, we expect the iPump regulation will allow approved insulin pumps to be incorporated into automated insulin delivery systems, reducing the regulatory burden. And as a result, potentially accelerate commercial timelines.

The clinical study for Control-IQ is now fully enrolled and we remain confident that it will be complete this coming spring. We plan to submit the application to the FDA as soon as the clinical data is available, and we continue to work towards our goal of launching Control-IQ next summer.

To be clear, Tandem will be the PMA holder for the algorithm as integrated in our Control-IQ system. UVA and TypeZero developed the core technology underlying our Control-IQ algorithm. However, the PMA approval will be based on our specific implementation of those formulas and will rely on our technical files and our clinical data.

As a result, any other company with a TypeZero license would still be required to create the specifications and implement the algorithm into their own system, which is a substantial task.

In addition, other licensees would be required to complete one or more clinical studies in order to gain approval for their device from the FDA.

It's also worth noting that the i-designation does not mean elements of an interoperable AID system, automatically integrated with components from other organizations.

The involved organizations must have formal agreements in place that define how the interoperable components must be integrated from both an R&D and a business perspective.

These relationships, such as the one we have with Dexcom, are defining agreements that outline how we work together to develop products, support our customers, investigate, resolve and report complaints and address financial returns.

Overall, the FDA's interoperability initiative is evidence that the agency recognizes that the pace of technology is accelerating and they support bringing new products to market in a more rapid pace.

At Tandem, we are committed to our goal of launching new products each year and furthering our efforts to improve the lives of people with diabetes.

And with that, I'll now turn it over to Leigh for her comments on the quarter and financial guidance.

--------------------------------------------------------------------------------

Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Executive VP, CFO & Treasurer [5]

--------------------------------------------------------------------------------

Thank you, John, and good afternoon, everyone. Our third quarter results once again reflected strong growth for our business and what continues to be a robust insulin pump market overall. It represents our highest sales quarter in history at $46 million, and includes, for the first time, nearly $3 million in sales from our recent international expansion.

Pump sales continue to be the most significant driver of our growth at 67% of total sales, followed by infusion sets at 23% and cartridges at 10%.

This brings us on a year-to-date basis to $108 million in sales, an incredible 60% growth year-over-year, considering that the prior year also included a $5 million benefit from the Technology Upgrade Program in place at that time.

We shipped approximately 8,400 pumps in Q3, including 1,100 pumps shipped into international markets.

On a year-to-date basis, we have shipped more than 18,300 pumps, which is already 7% higher than what we shipped in the full year of 2017.

In the U.S., this brings us to over 70,000 pumps shipped in the last 4 years, which we consider a reasonable estimate of our in-warranty installed base. Our pump sales also included approximately 1,100 renewals this quarter compared to 600 renewals in the third quarter of last year. Approximately, 20% of the renewal sales this quarter still came from customers who bought their original pump in 2012 or 2013, and the renewal opportunities continue to build with the ongoing expiration of warranties from the nearly 11,000 customers who purchased pumps in 2014.

Sales of supplies again increased significantly to $15 million this quarter compared to only $9 million in the same quarter of 2017. This was a result of a general increase in ordering customers, combined with the capture of infusion set sales to our entire installed base in all of 2018.

From an overall sales perspective, our guidance philosophy is to set expectations we feel confident in achieving based on factors that are within our control, such as capitalizing on our renewal opportunities and the success of our infusion set strategy.

When we first set expectations at the beginning of this year, we were optimistic about many opportunities including our ability to benefit from Animas' exit and our international expansion plan. But it was extremely difficult to predict how much benefit they would provide to our growth this year. With each passing quarter, we have continued to see extraordinary strength in all of these areas and, therefore, continue to raise our annual guidance expectations accordingly.

Now with better-than-expected results from the recent launch of our Basal-IQ technology and our continued momentum

(technical difficulty)

October we are again rasing our 2018 sales guidance to a range of $160 million to $165 million from the previous range of $150 million to $158 million. This includes estimated international sales of $7 million to $8 million.

Gross margin in the third quarter set another record for us. We continued the pattern of a sequential increase to 47%, continuing to scale up from 42% in Q1 of this year. We also demonstrated significant improvement compared to the prior year gross margin of 44%, which included a nonrecurring benefit of 5 margin points from the Technology Upgrade Program in place at that time. These improvements reflect leverage gained from higher production volumes to meet increased demand and a significant contribution from sales of pumps, which have the highest gross margin of our products.

We also continue to benefit from incremental gross profits associated with the 65% year-over-year increase in infusion set sales.

Gross margin was slightly pressured by a higher level of noncash stock-based compensation that we have seen historically.

In the third quarter of 2018, gross margin included a charge of $800,000 or 2 margin points compared to $300,000 or 1 margin point in the prior year.

Other factors that have and will continue to impact gross margin are seasonality, product mix, direct versus distributor mix and the percent of sales that come from the international business.

We continue to drive towards our goal of a 55% gross margin by the fourth quarter of 2019.

Operating expenses were $38 million in the quarter, including a significantly higher level of noncash stock-based compensation of $9 million.

By comparison, our operating expenses were $29 million in the second quarter of this year with $2 million in similar noncash charges.

The increase for this noncash charge, both in operating expenses and gross margin reflects a valuation of employee stock option grants impacted by significant appreciation in our stock price in the first half of this year.

Other increases in our operating expenses include cost associated with advancing our product pipeline and higher incentive-based compensation based on our sales results.

Overall, our strong sales growth and gross margin progression continue to drive improvement in our operating margin both on a year-over-year basis and sequentially to negative 34% of sales. We now expect our 2018 operating margin to be in a range of negative 37% to negative 32% of sales.

Adjusted EBITDA, which excludes the impact of noncash stock-based compensation, was negative 10% or only negative $5 million this quarter. Considering our anticipated sales growth, we are well positioned to reach our breakeven target for adjusted EBITDA in Q4 of this year. We ended the quarter with $114 million in total cash and investments, and are now completely debt free.

The cash balance has increased by $70 million from the end of Q2, this includes $21 million of net benefit from an equity financing completed in early August that we used to pay off our term loan debt. Excluding these net proceeds, we substantially reduced our cash use to under $5 million for the quarter, even with the ongoing investment to support our R&D pipeline and commercial team as well as early investments made in our international infrastructure.

In summary, we are increasing our annual sales guidance to a range of $160 million to $165 million with an operating margin range of negative 37% to negative 32%. This includes approximately $27 million in noncash expenses for both stock-based compensation, and depreciation and amortization. We expect to reach cash flow breakeven by the fourth quarter of 2019.

With that, I will turn it over to the operator for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) And our first question comes from the line of Travis Steed with Bank of America.

--------------------------------------------------------------------------------

Travis Lee Steed, BofA Merrill Lynch, Research Division - VP [2]

--------------------------------------------------------------------------------

First, I wanted to touch on the international business. I think you said Q4, you could do $5 million to $6 million there. Is there a reason why that won't be a run rate for 2019 on a quarterly basis or potentially grow sequentially through 2019, so revenue could be north of $20 million to $25 million next year?

--------------------------------------------------------------------------------

Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Executive VP, CFO & Treasurer [3]

--------------------------------------------------------------------------------

Travis, this is Leigh, thanks for calling in. Regarding our international business for next year, of course, we haven't given a lot of color on that, but what I'll say is that we're just getting started there. And so it's hard to say at the moment where that will go. I'll just remind you that we do have a significant opportunity in the very near term because of the Animas customers, who will be trying to come up with their pump in the next 9 to 12 months. And then we see that as a real opportunity for us, but no specific guidance here in terms of the dollars.

--------------------------------------------------------------------------------

Travis Lee Steed, BofA Merrill Lynch, Research Division - VP [4]

--------------------------------------------------------------------------------

Okay, that's fair. And previously you commented on being around 80,000 patients in the U.S. in the second half of 2019, looks like you're going to be there a little earlier than that maybe, potentially, even this year. Just curious if you can give an update on kind of where you expect patients in the U.S. to be kind of the second half of 2019 or end of 2019? And also if you can maybe comment on the LRP of just around mid-20% revenue growth over the next 5 years. Just curious, if you would maybe comment on a good starting point for revenue growth in 2019, given the momentum that you have, a low 30% growth a fairly good starting point?

--------------------------------------------------------------------------------

Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Executive VP, CFO & Treasurer [5]

--------------------------------------------------------------------------------

So again, we -- we're not giving any color yet on 2019 and where we expect to be. Keeping in mind, particularly because as we're heading into the fourth quarter, it's really our highest seasonal quarter and it's the baseline as we think about where 2019 will go. But I will remind you that 2019 is another real opportunity for us. Just like OUS, in the U.S., we still have the Animas opportunity in the first 9 months. We don't know of any competitor product introductions that we expect next year, so we still feel like there is this void or this window of opportunity for us to continue to grow the business at relatively high rate. So we look forward to giving you more color on that. We typically give our 2019 guidance at our Q1 earnings call.

--------------------------------------------------------------------------------

Travis Lee Steed, BofA Merrill Lynch, Research Division - VP [6]

--------------------------------------------------------------------------------

Okay. And just one quick follow-up. I know at the Analyst Day, I think you mentioned having a conversation with United in the fourth quarter. Just curious if the conversation happened or if it's on the calendar at this point?

--------------------------------------------------------------------------------

Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Executive VP, CFO & Treasurer [7]

--------------------------------------------------------------------------------

We have not yet had a conversation, but we do look forward to the opportunity to speak with them. And as we mentioned in the past, accumulating the Basal-IQ data was the first real step in order to get us in front them. And we believe that, that coupled with the Control-IQ data to come next year that we'll have a real opportunity to try to get back into that network. But just a reminder, we don't -- we have not factored in that the UHC opportunity is in our guidance and so really is upside to the business if that were to come about.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

And our next question comes from the line of Brooks O'Neil with Lake Street Capital.

--------------------------------------------------------------------------------

Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [9]

--------------------------------------------------------------------------------

I have a couple of questions. First off, I know you're probably reluctant to talk about Dexcom very much, but could you just give us any sense for how the integration with the G6 has proceeded? And what you're seeing in the field in relation to uptake of the combined G6 with your Basal-IQ.

--------------------------------------------------------------------------------

John F. Sheridan, Tandem Diabetes Care, Inc. - Executive VP & COO [10]

--------------------------------------------------------------------------------

Brooks, this is John Sheridan. We -- I'll just say we have a great relationship with Dexcom and with TypeZero for that matter. We work very closely with them. We have frequent management meetings and the engineers also work very closely with the teams. We believe they've got best-in-class technology, and we look forward to a long relationship with Dexcom. I would say that from what we've seen so far, the integration with the G6 is going extremely well. And when you look at the anecdotal feedback we're getting from the field, people really appreciate the fact that there is no fingersticks and the integration of the technology is working the way we'd expect it to.

--------------------------------------------------------------------------------

Kim D. Blickenstaff, Tandem Diabetes Care, Inc. - President, CEO & Director [11]

--------------------------------------------------------------------------------

I would also add, Brooks. It's the least burdensome system out there, because we eliminated the fingersticks with the G6, as a big advance to get Basal-IQ through the iCGM ruling. So that's another bigger aspect to this. Also the simple training, there is only 1 screen and people accomplish the training very quickly and successfully without having to see the caregiver. So there's a lot of pieces to the demand for it.

--------------------------------------------------------------------------------

Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [12]

--------------------------------------------------------------------------------

Yes, that's great. I think it's a huge step forward for diabetics, and I'm excited for you and I'm excited for them. So it's a big deal. I'm curious just a little bit here, you commented in the press release 1,055 pumps sold internationally and I think you commented $2.5 million in revenue that left me with 7,379 pumps for the U.S. market and 43 million -- $43.8 million of revenue. Can you just help me to get a better sense for what's going on there? And if my math is right, how should I think about that?

--------------------------------------------------------------------------------

Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Executive VP, CFO & Treasurer [13]

--------------------------------------------------------------------------------

Sure. So you do have the numbers right. And OUS factoring $0.5 million was primarily comprised of pump sales. And just a reminder, when you compare the U.S. business from an average selling price to the OUS business, that we see a significant haircut to the selling price there, so in the U.S. the realized reimbursement on the pump is around 4,000 for us. OUS is about half that, so in the $2,000 range, slightly above. And so then from a U.S. perspective, if you think about the business, the pumps sales overall were about 67% of the business, followed by infusion sets with cartridge being the smallest piece of that.

--------------------------------------------------------------------------------

Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [14]

--------------------------------------------------------------------------------

Yes, okay, that's very helpful. I know it's early days but do you have any comments on Canada? And what's happening up there?

--------------------------------------------------------------------------------

Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Executive VP, CFO & Treasurer [15]

--------------------------------------------------------------------------------

Only that we're super excited about getting started there, it was great to get that approval because it meant that we could start marketing. And so our sales force is in place and they are actively speaking with physicians. The next big step for us is to get the approvals in each province for reimbursement. And so once we have that, we'll be able to start shipping the pumps and we expect to do that by the end of this year.

--------------------------------------------------------------------------------

Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [16]

--------------------------------------------------------------------------------

Great. And then my last question, I really appreciate the commentary, is can you give us any update on manufacturing? And how the scale-up is going? I know, we all had a chance to see your manufacturing facilities at Investor Meeting, but is the scale-up going as planned? And do you think that can continue as you move into 2019?

--------------------------------------------------------------------------------

Kim D. Blickenstaff, Tandem Diabetes Care, Inc. - President, CEO & Director [17]

--------------------------------------------------------------------------------

Yes, Brooks, we definitely see an uptick in demand. I think we -- to a certain, we anticipated that and we are planning ahead. But all of the organizations that are customers facing as well as manufacturing have been scaling appropriately, it's been a lot of work. But I'll tell you that the organization is extremely enthusiastic about this and we're motivated. It's great to see the uptake of our new products. And so it's kind of a -- it's a real -- it's a good problem for the organization to have. I think we're responding appropriately.

--------------------------------------------------------------------------------

Operator [18]

--------------------------------------------------------------------------------

And our next question comes from the line of Alex Nowak with Craig-Hallum.

--------------------------------------------------------------------------------

Alexander David Nowak, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [19]

--------------------------------------------------------------------------------

I just wanted to touch on the implied Q4 guidance. I think the move up in the guide makes sense for everyone, but is it safe to say we could see actual Q4 results much higher even from here? I mean, you grew the first 9 months of 2018 by 60%, but your guidance is applying about 36% growth for Q4. So I know Q4 is a tougher comp but, I guess, why should we experience material slowdown? Or do you think there is just some level of conservatism still in the guidance?

--------------------------------------------------------------------------------

Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Executive VP, CFO & Treasurer [20]

--------------------------------------------------------------------------------

Sure. I would just say that I'm always -- there is always some level of conservatism or caution for things that we can't anticipate, namely, one, will be the competition. But we have seen great benefit this year, which we expect to continue into the fourth quarter with a little bit different this year that we haven't seen in the past is typically we see about 35% to 40% of our sales fall into the fourth quarter and to what we refer to as the pump season. But with the introduction of Basal-IQ, with that approval in June, and the sales beginning in the third quarter. We saw a sequential climb from Q2 to Q3 that we haven't seen in the past. And so I think that the pump season may have started a little bit early this year. So we're still optimistic about the fourth quarter and what it can bring, but its early in the quarter, so good news so far though.

--------------------------------------------------------------------------------

Alexander David Nowak, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [21]

--------------------------------------------------------------------------------

Okay, that's helpful. And it looks like Medtronic might be delaying the clinical trial for the 690G. Now I understand you're not Medtronic, but I'm just curious what are you hearing about that? And, you know, is it fair to say that a 690G delay -- would that -- I assume that would only just benefit Tandem's market share in 2019 and 2020.

--------------------------------------------------------------------------------

John F. Sheridan, Tandem Diabetes Care, Inc. - Executive VP & COO [22]

--------------------------------------------------------------------------------

The only thing that we've heard is that the -- that their study has been delayed to beyond April 2019, and that was very recent, the commercial launch, yes.

--------------------------------------------------------------------------------

Alexander David Nowak, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [23]

--------------------------------------------------------------------------------

Okay, got it. And then just last one. I think there's also some discussion out there about several issues with the Medtronic's 670G. It sounds like regulators might be taking a look there. So just curious, are you hearing any issues on 670G?

--------------------------------------------------------------------------------

John F. Sheridan, Tandem Diabetes Care, Inc. - Executive VP & COO [24]

--------------------------------------------------------------------------------

Well, I think you're probably referring to MDRs. And I think that as a medical device company, we all have MDRs. And it's the mechanism that the FDA uses to just keep track of safety issues and keep the general public aware of what's going on. I would say that relative to Medtronic, it's probably something that's best -- conversation with you and the FDA and not us.

--------------------------------------------------------------------------------

Operator [25]

--------------------------------------------------------------------------------

And our next question comes from the line of Mathew Blackman with Stifel.

--------------------------------------------------------------------------------

Mathew Justin Blackman, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [26]

--------------------------------------------------------------------------------

So a couple of questions on international that I'll just lump together, if okay, and then one quick follow-up. Starting with international, now that you're more firmly planted in several OUS geographies, do you have any better sense of the remaining Animas conversion opportunity? And then the second part of that question is as you think through each of these new OUS geographies and above and beyond the Animas conversion cycle, which of these regions would you expect to have the largest long-term opportunity?

--------------------------------------------------------------------------------

Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Executive VP, CFO & Treasurer [27]

--------------------------------------------------------------------------------

So at this point, we still don't have a great sense for what's left in terms of Animas customers. I will say that our distributors are -- served that business before, and we think that as many people that could waited for us to come. But again, we'll have to see how that pans out here in the next few quarters.

--------------------------------------------------------------------------------

Mathew Justin Blackman, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [28]

--------------------------------------------------------------------------------

And then as we think about these launches in multiple geographies outside the U.S., is there any one in particular or several in particular, and I'm thinking above and beyond the shorter-term Animas conversion opportunity, that are notable in terms of the size of the opportunities over the longer term?

--------------------------------------------------------------------------------

Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Executive VP, CFO & Treasurer [29]

--------------------------------------------------------------------------------

Yes. We haven't really given any color as to the size of the market in the different geographies other than, I would think, Canada in particular. They have about 300,000 pumpers there. So that's one of the larger opportunities. But beyond the Animas opportunity, we're launching with t:slim X2 with the G5 integration. And so growth opportunities beyond next year really come from our ability to launch the Basal-IQ and Control-IQ algorithms there down the road.

--------------------------------------------------------------------------------

Mathew Justin Blackman, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [30]

--------------------------------------------------------------------------------

And then my follow-up on Animas in the U.S. I'm not sure if you're willing to disclose the next of Animas conversions and your pump number this quarter. If so, great. But if not, can you at least give us some directional sense of how that number compared to the last quarter or the last several quarters?

--------------------------------------------------------------------------------

Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Executive VP, CFO & Treasurer [31]

--------------------------------------------------------------------------------

Sure. So historically, before J&J announced the exit of Animas from the market, Animas had represented in the low teens as a percent of our pump shipments. And so we're very excited about what we're seeing from pump shipments now. In the last 3 and 4 quarters, we still managed to convert over 50% from MDI, but Animas and Medtronic both have also doubled compared to what we are seeing in the past. So we're keeping that healthy balance of attracting new pumpers but also converting from the other companies. So same trends have continued for Animas that we've seen since they announced their exit.

--------------------------------------------------------------------------------

Operator [32]

--------------------------------------------------------------------------------

And our next question comes from the line of Ravi Misra with Berenberg Capital.

--------------------------------------------------------------------------------

Ravi Misra, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [33]

--------------------------------------------------------------------------------

So just one on guidance and then I have a couple of follow-ups. The up guidance, when we had the Analyst Day, Canada had not really been approved. Was guidance that was given at that time inclusive of sales in Canada? Or now that you have approval, is that upside? And then secondly, the second part of it, I mean, you kind of left that alone would suggest a stronger U.S. market. Is that being informed by a higher price or just kind of greater demand? And any clarity there and then a couple of follow-ups.

--------------------------------------------------------------------------------

Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Executive VP, CFO & Treasurer [34]

--------------------------------------------------------------------------------

Right. From the Canada perspective, that was factored into our international guidance already. And we really expected it to be modest this year, and it's mostly because of the timing from when we got approval and having to get the reimbursement set up in each of the provinces. So Canada is just getting started and factored into that original expectation. And then in terms of the U.S., we are enthusiastic about the fourth quarter. Again, it's that Basal-IQ launch, the timing that it came about and the great enthusiasm that we're seeing over the product that's really driving the movement into the fourth quarter and the next segment of -- the domestic revenues as well.

--------------------------------------------------------------------------------

Ravi Misra, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [35]

--------------------------------------------------------------------------------

Great. And then just on that, that I think you suggested came about 6,500 people have upgraded to Basal-IQ. Is my back of the napkin kind of attachment rate to your installed base, your t:slim installed base, around 22% to 23%? And would you see these guys as your kind of initial market for Control-IQ when that eventually comes out? How are you kind of viewing that adoption cycle in-house?

--------------------------------------------------------------------------------

Kim D. Blickenstaff, Tandem Diabetes Care, Inc. - President, CEO & Director [36]

--------------------------------------------------------------------------------

Well, obviously they are the early adopters. Obviously, they were likely using the integrated Dexcom G5 product, and we expect that to accelerate. CGM is about 35%, 40% of our installed base. So we hope to see that kind of adoption level and perhaps even higher as the word spreads about what it does for giving control. And certainly, we're seeing that both reductions of hypoglycemia and rebound hyper. And I think the improvement in the Control-IQ would be something that people will really want to have as an additional control measure.

--------------------------------------------------------------------------------

Ravi Misra, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [37]

--------------------------------------------------------------------------------

Great. And then one, maybe one last one. Just on kind of TypeZero, your competitor today announced that they have a relationship with Tidepool. Can you just walk us through kind of how you think about working through or partnering with some of the companies that are out there providing algorithms for AID devices?

--------------------------------------------------------------------------------

John F. Sheridan, Tandem Diabetes Care, Inc. - Executive VP & COO [38]

--------------------------------------------------------------------------------

Well, we are working on improving the Control-IQ algorithm ourself. We have resources internally that are focused on that, and we continue to make that a priority for the time going forward. I would say that we also collaborate quite a bit with universities that do research in this area. And we have -- while they're not defined partnerships, we do provide pumps and work closely with these organizations to understand what's going out there -- what's going on out there. So we did hear about the partnership with Insulet and Tidepool. And I think that there's not a whole lot of information regarding the timing and the clinical studies and those sorts of things. And I guess we'll just have to wait and see when that information is available.

--------------------------------------------------------------------------------

Kim D. Blickenstaff, Tandem Diabetes Care, Inc. - President, CEO & Director [39]

--------------------------------------------------------------------------------

And we've always said this. We're not really competitive with Insulet. It's MDI patients coming onto a system for the first time, and we got a very large share, and that's where their patients come. And we don't see much switching back and forth between the 2 systems. So I don't really use the word competitor when I talk about Insulet. They're just another good option.

--------------------------------------------------------------------------------

Operator [40]

--------------------------------------------------------------------------------

Our next question comes from the line of Kyle Bauser with Dougherty & Company.

--------------------------------------------------------------------------------

Kyle Royal Bauser, Dougherty & Company LLC, Research Division - Senior Research Analyst [41]

--------------------------------------------------------------------------------

Following up from a previous question, you mentioned that conversions from Animas immediately following their exit was about evenly distributed 1/3 across you and the other 2 competitors. I mean, given the last enhancements in the latest systems and your traction, I imagine your conversions are a lot higher than that now. Do you have any sense for what the latest conversion rate is compared to your competitors?

--------------------------------------------------------------------------------

Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Executive VP, CFO & Treasurer [42]

--------------------------------------------------------------------------------

Unfortunately, it's information we would love to have, but we don't have that available. There are a number of factors. One is that a lot those patients are being serviced by Medtronic today. Our distributors have access to a certain portion of those. But we unfortunately don't know, but we do believe 1/3, 1/3, 1/3 still probably seems like a reasonable estimate.

--------------------------------------------------------------------------------

Kyle Royal Bauser, Dougherty & Company LLC, Research Division - Senior Research Analyst [43]

--------------------------------------------------------------------------------

Okay. And gross margin in the quarter 47%, a nice jump from the last quarter and inching closer to the breakeven benchmark of 55% by late next year. What quarterly sales number gets you to 55% gross margin? Can you talk about other efficiencies you expect to achieve to help meet that goal?

--------------------------------------------------------------------------------

Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Executive VP, CFO & Treasurer [44]

--------------------------------------------------------------------------------

It really comes back to increasing the production volume. That one is going to be the biggest driver between now and next year. We've already seen a lot of the efficiencies and the processes by putting our new manufacturing facility into place. And so in terms of a run rate, the way we think about it, somebody asked earlier, we have communicated 80,000 customers on our installed base. And so while we might hit that milestone earlier than the back half of next year, it's important to have that many customers at least in the first half that are consistently ordering supplies in the back half. So that's the milestone that really gets us there. And it's difficult to give a run rate since the business is so seasonal.

--------------------------------------------------------------------------------

Operator [45]

--------------------------------------------------------------------------------

And our next question comes from the line of JP McKim with Piper Jaffray.

--------------------------------------------------------------------------------

Jonathan Preston McKim, Piper Jaffray Companies, Research Division - VP & Senior Research Analyst [46]

--------------------------------------------------------------------------------

I wanted to follow up on John's comments about, I mean, you really kind of feel at home that the [EOE] guys have TypeZero. And others could get it but it wouldn't be quick, right. So it seems like when you launch Control-IQ, you're really going to have at least a year, maybe 1.5 years head start on anybody else in terms of having the most robust system out there. So as a company strategically, what can you do next year or even now to accelerate kind of competitive wins? Is it offering some discounting to Medtronic users or Animas users or accelerating the sales force additions into '19? I'm just trying to see how you -- what should we think about next year to take advantage of this kind of gap where you've got the latest and greatest system out there?

--------------------------------------------------------------------------------

John F. Sheridan, Tandem Diabetes Care, Inc. - Executive VP & COO [47]

--------------------------------------------------------------------------------

Well, JP, this is John. Good talking to you. I'll just focus on the product part of the question. And I would say that as I said just a moment ago, we're definitely continuing to work on improving the algorithm. And we're working with TypeZero and others. When we implemented the algorithm, we didn't do anything to it. We made it -- we actually implemented it identically to the way that TypeZero had just so that we could accelerate our process through clinical trials and the regulatory approval. But now we're looking at it carefully, and we believe we're going to make improvements to that. And those are going to be available in time. We haven't put together a specific schedule for that yet or the time lines, but I'm sure we will in the near future and be sure to communicate that to you. And the other big thing that's happening obviously is t:sport. t:sport is the internal name for our miniaturized pump. We are very excited about that product. Our team is fully staffed, and we're really working aggressively to get that to market. We believe that the iPump designation is going to pull our time line forward. And I think that we still feel comfortable that we'll get approval in the 2020 time frame and maintain our cadence of one significant new product annually.

--------------------------------------------------------------------------------

Jonathan Preston McKim, Piper Jaffray Companies, Research Division - VP & Senior Research Analyst [48]

--------------------------------------------------------------------------------

Okay. But is there anything strategically that you're going to offer out there? Or are you going to hire additional reps to accelerate share taking next year?

--------------------------------------------------------------------------------

Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Executive VP, CFO & Treasurer [49]

--------------------------------------------------------------------------------

JP, it's Leigh. Thanks for calling. In reference to that, so we talked about -- before about, first of all, just the size of our sales force. And we believe based on the way the competitive environment looks in the next year that we don't need to do any dramatic expansion in order to see the growth that would come. There is room for our existing reps to be more productive. Having said that, we are looking at a modest expansion, which would be looking -- or finding pockets of opportunities to maybe split a territory here or there or add more strength to a single territory where we see higher volumes coming through. So in that regard, we expect to see the growth, but pretty much with the sales force that we have in place today. And then in terms of programs, we still expect that we're going to be billing to the payers at the same rate that we have today. So we're not doing anything in particular because again, I think the product pretty much is the driver for bringing people over to us.

--------------------------------------------------------------------------------

Jonathan Preston McKim, Piper Jaffray Companies, Research Division - VP & Senior Research Analyst [50]

--------------------------------------------------------------------------------

That's helpful. And then last one for me is on gross margins in this quarter. There was -- I think there were 2 kind of headwinds on stock comp, and then obviously, international is at lower ASP. So can you help quantify those in terms of if you reported 47, if you back out those kind of headwinds, where were you at?

--------------------------------------------------------------------------------

Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Executive VP, CFO & Treasurer [51]

--------------------------------------------------------------------------------

Right. So the stock comp, we've always had a baseline of stock comp in the gross margin. And historically, it's been about 1% of revenues. This quarter in particular, because of all the changes with the options that we granted, it jumped to about 2%. So that was a 1% drag on the margin this quarter in particular. And then international, although we do expect to see pressure from it going forward, the level of sales this quarter wasn't significant enough to have a real impact at this time.

--------------------------------------------------------------------------------

Operator [52]

--------------------------------------------------------------------------------

And our next question comes from the line of Jeff Johnson with Baird.

--------------------------------------------------------------------------------

Jeffrey D. Johnson, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [53]

--------------------------------------------------------------------------------

John, maybe a couple of follow-up questions for you, I guess. You talked about maybe making some changes to Control-IQ, but I think the time line is unchanged on that. So when -- if you hit that mid-2019 launch time line, is the understanding that there may be some algorithm changes after that? But you'd still be very comfortable. I mean, that data looks so good already in what we've seen in some of the early trials that I would think you'd still be comfortable launching though in the mid-'19 time period on that, right?

--------------------------------------------------------------------------------

John F. Sheridan, Tandem Diabetes Care, Inc. - Executive VP & COO [54]

--------------------------------------------------------------------------------

Yes, that's exactly right. I mean, we've fully enrolled the study. It's going very well. We expect it to be complete in the spring time frame, and we still are on track to get approval in the summer of 2019. What I was referring to in the past comment was that we're now looking at the Control-IQ algorithm and we're going to improve it so that at some point in the future, we'll be providing updates to it using the updater and making it available to our customer base. So it's something that we're going to be working on over time, and I would expect that we would have multiple updates and improvements to the algorithms as we make progress in developing them.

--------------------------------------------------------------------------------

Jeffrey D. Johnson, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [55]

--------------------------------------------------------------------------------

Okay, that's great. And then I think at the Analyst Day, you talked about phone control potentially coming as part of t:sport, although I'm not -- quite remember if I'm right on that. Just your latest thoughts on phone control, especially with one of your competitors making some comments tonight about getting that on their next-gen product? And then Leigh, I just want to make sure I understand your UNH comments, your United comments. You mentioned having data for both Basal-IQ and Control-IQ. Do you feel like you need Control-IQ data to go back to them? Or do you think the Basal-IQ could be enough to at least reengage there?

--------------------------------------------------------------------------------

John F. Sheridan, Tandem Diabetes Care, Inc. - Executive VP & COO [56]

--------------------------------------------------------------------------------

So regarding phone control, at Analyst Day, we indicated that we're working on a phone app, and that's going to be available in the early 2019. And that's our first priority. But we are definitely going to immediately jump from that into control. And I think we haven't really indicated exactly what our next steps are, but we -- I think when we are introducing the t:sport in the 2020 time frame, we will have phone control in place on that device. And it's something that we've talked to the FDA about, and they've been very encouraging in terms of working in that manner.

--------------------------------------------------------------------------------

Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Executive VP, CFO & Treasurer [57]

--------------------------------------------------------------------------------

And then to your question on United Healthcare, basal-IQ, I think, is the first major step. And so we'll just have to see what is interesting enough to them or what they want to see in order to make a decision. I could see them looking at Control-IQ as the product that's more competitive with the 670G considering it manages both the highs and the lows. And so it's really going to be up to them. But we're excited to present the Basal-IQ data and to continue an iterative conversation with them and moving forward hopefully to getting some access to those people.

--------------------------------------------------------------------------------

John F. Sheridan, Tandem Diabetes Care, Inc. - Executive VP & COO [58]

--------------------------------------------------------------------------------

And we have never received a standard or proposal or suggestion on what they do need to make a definitive agreement. So we're guessing that it could Basal-IQ. It may not. Maybe it would have to be Control-IQ. So we just don't know. It's not defined.

--------------------------------------------------------------------------------

Operator [59]

--------------------------------------------------------------------------------

And our next question comes from the line of Steven Lichtman with Oppenheimer.

--------------------------------------------------------------------------------

Steven Michael Lichtman, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [60]

--------------------------------------------------------------------------------

On the replacement cycle, it seems like it's continuing to build here. Can you give us your latest comments on how the process is working in terms of you tracking down these patients and bringing them on board? Are you seeing any acceleration there? And of course, is Basal-IQ helping that as well?

--------------------------------------------------------------------------------

Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Executive VP, CFO & Treasurer [61]

--------------------------------------------------------------------------------

Yes, so we have. We do have a team. We've talked about this in the past, I believe. What we call our renewals and retention team. And it's twofold. It's first making sure we're involved with the customers or the patients before they get to the end of their renewal cycle to build that relationship. And then it's continuing to work with them after their warranty expires in order to talk to them about the latest and greatest products. And so -- and we believe that Basal-IQ can be a real differentiator in that regard when it's so new still that I don't really have any information to give you in terms of what it's done for the renewal opportunities. But to your point, we have seen a growth quarter-over-quarter. We were up to 1,100 patient renewals this quarter, which was sequentially up from 800 in the second quarter. So as the opportunities continue to grow, we expect to see that number grow in the future.

--------------------------------------------------------------------------------

Steven Michael Lichtman, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [62]

--------------------------------------------------------------------------------

And then on the pipeline obviously, Basal-IQ now and then Control-IQ in '19 are the big focuses. There's a couple other milestones I just wanted to touch on. When will we hear from FDA, do you think, on the special controls around iPump? And then in 2019, what should we be thinking about milestone-wise relative to t:sport in terms of when you'll begin a clinical trial, et cetera?

--------------------------------------------------------------------------------

John F. Sheridan, Tandem Diabetes Care, Inc. - Executive VP & COO [63]

--------------------------------------------------------------------------------

Well, I think the -- on the first question, we have submitted the de novo application. The time line that the FDA has committed to was 150 days for review and approval. It took Dexcom approximately 108 days. We would anticipate that we'll begin interacting with the FDA here in the very near future. It probably takes them a month or so to get the data, to get -- understand it and then start asking questions. So I would say in the near future, we would expect that we will have the interactions with them.

--------------------------------------------------------------------------------

Kim D. Blickenstaff, Tandem Diabetes Care, Inc. - President, CEO & Director [64]

--------------------------------------------------------------------------------

Also, the clinical trial part of the iPump, you want to mention that?

--------------------------------------------------------------------------------

John F. Sheridan, Tandem Diabetes Care, Inc. - Executive VP & COO [65]

--------------------------------------------------------------------------------

Yes. So on the -- as far as the clinical trial goes for t:sport, since we're going to submit that device as an iPump now, we're not going to actually need to do a clinical study. And in fact, that's the reason we're able to pull the commercial time line in. It's because the regulatory path is going to be simplified and it will not require a clinical study. We'll simply integrate it with the Control-IQ system at that point in time as an iPump once we get approval for it. So it's going to significantly shorten the time frame for that device. But it will be available in the 2020 time frame, as we had talked about.

--------------------------------------------------------------------------------

Operator [66]

--------------------------------------------------------------------------------

And our next question comes from the line of Doug Schenkel with Cowen.

--------------------------------------------------------------------------------

Ryan Blicker, Cowen and Company, LLC, Research Division - Associate [67]

--------------------------------------------------------------------------------

This is Ryan on for Doug. So 2 P&L questions. Gross margin increased nearly 300 basis points sequentially in Q3 despite the stock comp headwind you noted. Should we expect at least as much of the [gross margin growth] in Q4 given typical seasonal strength? And does that stock comp reverse in Q4?

--------------------------------------------------------------------------------

Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Executive VP, CFO & Treasurer [68]

--------------------------------------------------------------------------------

With regard to the stock comp, we expect that level to still continue for the next 6 to 8 quarters as most of the grants that were part of that were 24-month grants. So that will play just for a little bit of time. In terms of the fourth quarter, I'm not going to give any specific number, but we do expect to see a nice increase with Q4 generally being the highest pump sales in the year. You've seen what we've done so far this year, and we've had a nice growth of 2 to 3 points each quarter. So we hope to continue to move in that direction.

--------------------------------------------------------------------------------

Ryan Blicker, Cowen and Company, LLC, Research Division - Associate [69]

--------------------------------------------------------------------------------

Got it. And then to confirm, did you say that you still expect to be adjusted EBITDA positive in Q4? Does that exclude noncash charges? And then that would assume to imply pretty minimal OpEx growth quarter-over-quarter. Were there any timing dynamics in OpEx this quarter?

--------------------------------------------------------------------------------

Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Executive VP, CFO & Treasurer [70]

--------------------------------------------------------------------------------

So yes, we do still expect to be EBITDA positive in the fourth quarter. And when we talk about adjusted EBITDA, it's excluding depreciation and amortization as well as noncash stock-based comp. And so over time, the third quarter has tended to be our highest quarter of spend generally, if you take out the stock-based comp piece of it. That's when a lot of the tradeshows occur and other activities. And so as we move into the fourth quarter, we generally see flat going into the end of the year.

--------------------------------------------------------------------------------

Operator [71]

--------------------------------------------------------------------------------

And that concludes today's question-and-answer session. So with that, I'd like to turn the call over to back over to President and CEO, Mr. Kim Blickenstaff, for closing remarks.

--------------------------------------------------------------------------------

Kim D. Blickenstaff, Tandem Diabetes Care, Inc. - President, CEO & Director [72]

--------------------------------------------------------------------------------

Thanks again to everybody for joining us today. We're going to have a busy fall here, and we have a number of investor conferences here in November. And we welcome seeing you, if you'd like to come to these various conferences. We'll be in New York for the Stifel Healthcare Conference on November 13, followed by the Canaccord Conference on 15th and then the Piper Jaffray Healthcare Conference on the 28th. We'll also be attending the Credit Suisse Conference in Scottsdale, Arizona on November 14. We also expect to have several bus tours in the December time frame. We'll keep you posted on those. So thanks so much again for everyone joining us today. We look forward to keeping you updated as the company continues to progress. Thank you very much.

--------------------------------------------------------------------------------

Operator [73]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a wonderful day.